Cryptocurrency (e-cash) is a decentralised virtual currency designed as a meduim for digital exchange to conclude secure financial transactions. Cryptocurrency is based on cryptography, a coding standard through which monetary values are encrypted to initiate safe electronic transactions. Cryptocurrencies offers an easy to use digital alternative to traditional currencies.
As opposed to centralized banking system where the currency is controlled by a Federal Reserve entity, cryptocurrencies uses a decentralized control that requires multiple entities to operate the assets, spreading the load of a blockchain (database) across multiple distributed nodes (servers). Compared to typical currencies held by financial institutions, cryptocurrencies to a point are invisible to government and law enforcement agencies.
Bitcoin launched in 2019 was the first pseudonymous open source cryptocurrency and today there are more than 2000 recogonised alternative (altcoin) operational. The legal status of cryptocurrencies varies from country to country and is treated as a property for tax purpose in most.
Cryptocurrency Market Capitalization
Cryptocurrencies market cap relies on decentralised stock markets as traditional stock exchange does not recogonise cryptocurrencies as a traditional stock commodity. Crypto market capitalization is a measure to obtain gross index value of an organisation (Company or firm) and is calculated based on the availibility of net shares or stocks multiplied with their average market selling price.
Decentralised exchange (DEX) enables peer to peer trading of cryptocurrencies. Being unregulated and highly dependent on trading volume and exchangeable market liquidity Deregulated stock exchanges are highly volatile.
Bitcoin ( Unicode - ₿ )
Bitcoin (BTC) was the first open source decentralized cryptocurrency invented by Satoshi Nakamoto and was released in 2009. Bitcoin is the most popular cryptocurrency based on peer to peer distributed ledger technology (pseudo-anonymous blockchain). Bitcoins are created through a process called mining and small units are called milliBitcoin or satoshi (sat).
Today there are more than 17 million bitcoins in circulation with net value worth more than $60 billion. Bitcoins are registered to to their succesive users through bitcoin addresses created by random private keys and digitally signed signatures.
Altcoins: The Bitcoins Alternative
Altcoins (Litecoin, Zcash, Ethereum, Stellar, NEM) are the alternative to bitcoins. There are more than 2000 bitcoin alternatives in operation. Several altcoins offer a more versatile cryptographic programming (SHA-256, Scrypt)to build applications on top of, while yet others offer more privacy compared to Bitcoin. Zcash (ZEC) over time has proven to be the most profitable cryptocurrency, with average expected returns far higher than other coins like Ethereum (ETH) and Bitcoin (BTC). Overall altcoins are typically more riskier than bitcoins with their exchange rate being highly volatile.
The adequacy of decentralised cryptocurrency policies for operation and exchange is yet to be judicially tested in most countries. Consolidated global stock exchange and centralised federal systems does not recogonise cryptocurrency as a stock commodity thus making them limited to virtual form. With over 10 years in existence, most countries do not have stautatory systems to regulate or ban cryptocurrencies.
- The decentralised and non-regulatory nature of cryptocurrencies makes them highly vulnerable to potential hinges against risks.
- The average stock value of cryptocurrencies are based on trading volume in demand, thus the rate for which cryptocurrencies can be exchanged for another currency can widely fluctuate.
- While traditional currencies and assets have consumer protections in place, there is no intermediary with the power to limit consumer losses if cryptocurrencies are lost or stolen..
The psuedo-anonymous nature of cryptocurrencies makes them highly siuted for web criminals, money laundering, hawala activities and evading economic sanctions. Cryptocurrencies are by many economists considered economic bubbles due to their decentralised nature.